Globalization and Industry: Evolution of Organizational ...

Takahiro FujimotoProfessor of Faculty of Economics, The University of Tokyo

Executive Director, Manufacturing Management Research Center Senior Research Associate, Harvard Business School

Globalization and Industry: Evolution of Organizational Capability andComparative Advantage in Architecture (1)

The University of Tokyo(November 13, 2008)

Global Focus on Knowledge/Winter Semester 2008

The figures, photos and moving images with ‡marks attached belong to their copyright holders. Reusing or reproducing them is prohibited unless permission is obtained directly from such copyright holders.

Takahiro Fujimoto, The University of Tokyo

2

What kind of epoch is the 21st century growing into?

・The fundamentals are globalization ▪▪

recurrence to the 19th-century-ish world?

・Extreme discussions at the turn of the century have been denied by realities.

・It’s becoming clear that this unexpectedly is an epoch taking the golden mean.


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World at the Beginning of the 21st Century ・・ Century of Globalization?• Since the ’90s digital networking technology has changed the world; theory that “the 21st

century is an era of digitization.” It is the U.S. that has led this and revived own economy.

• While America’s prominent position stays still unshakable, its self-confidence in absolute predominance of information, military affairs, and finance has wavered since 2001.

①The IT bubble set off in the U.S. has collapsed and American-style corporate governance has shown its own limits.

②The dominating military technology has failed to guarantee the realization of its national interests.

③The highly developed financial technology has not been alchemy to ingenerate excellent articles out of nonperforming loans.

• The American force has continued to be engaged in uphill battles in a number of traditional manufacturing industries, resulting in the largest amount of current account deficit in the world (in 2007).

• China, using as the driving force exports to the U.S. and EU whose corporations operate there, has made its trade surplus monstrously large.

• In Korea and Taiwan, there have emerged in rapid succession products and corporations that are superior to the Japanese force in competitiveness.

• In Europe, Germany has recorded the world’s top level of trade surplus despite the higher Euro.

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Globalization and Comparative Advantage

▪Why is it that, in a certain country A, instead of an industry X, another industry Y prospers? In the 21st-century Japan what industry will remain, what will be exported, and what will be imported? What is competitiveness of one industry in one country?

Standard answer of economics ▪▪▪

the theory of comparative advantage

Relative level of factor productivity →

competitive superiority of one country’s industry (classical school Ricardo)

Degree of co between industry characteristics and national characteristics with respect to production factors →

competitive

superiority (new classical school)4

Country’s characteristics ・・

Abundance in productiveresources

Comparative Advantage Theory of New Classical Economics:Fundamental Logic Structure ▪▪▪▪▪▪

Characteristics of assets possessing comparative advantage ・・

Intensive degree of productive resources for products

Country with abundant workforce

Labor-intensive industry requiring plenty of workforce

Comparative advantage

Country with abundantcapital

Capital-intensive industry requiringplenty of capital

Comparativeadvantage

However ・・

it eliminates gaps in industrial productivity by country. (reality?)

Compatibility▪▪▪▪▪▪


A newly designed product is produced firstly in a developed nation with technological capability.

When the design becomes standardized (unvarying routine) the production base moves to a developing nation with low wages.

Product Cycle Theory (Staggered Morphology)

Production volume of developednations in an industry X

Production volume of backward nations in an industry X

Technological innovation

Standardization

Start of production

Start of export

Offshore production(multinationalization)

Start of production

Start of export

Quantitative growth

Start of import

Shift to backward nation

t

Industrial production volume

6


・・

but, is it merely coincident that the production of a product A

starts in a country X? Is it not natural that the production begins at a place the product design has been drawn?

New Trade Theory (P. Krugman, others)

Economies of scale

Product differentiation

Cumulative causal relation

Intrasectoral trade

Historical coincidence

When economies of scale (The more one produces, the less his cost becomes.), and product differentiation (A well-designed product sells at a higher price.) exist,

The production snowballs at a place it has happed to begin.

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Country’s characteristics

Uneven distribution of manufacturingorganizational capabilities

Theory of Comparative Advantage in Design (Architecture)

Characteristics of assets possessing comparative advantage

Architectural characteristics of product

By linking an engineering concept of design with an economic idea of comparative advantage, is it not possible to explain a new phenomenon of “minute intra-industry trade” under globalization?

Compatibility

Comparative advantage

Architectural Comparative Advantage Theory


A foothold location for creation of design information (development) goes in advance of one for transcription of design information (production).

Stated from the standpoint of the open manufacturing, location for and design stronghold should be emphasized more.

Nonetheless, this has not been squarely taken up to date.

① Theory of comparative advantage in a narrow sense ・・・focused on production location, overlooked designing location

② Product cycle theory ・・・emphasized developmental location, which, however, was concludedas being “the U.S.”

③ New trade theory・・・paid attention to cumulative effect of production location, but occluded by calling it “coincidence”

A greater importance ought to be attached to comparative advantage in design, or decision on location for a design stronghold.

A way of thinking originated from this, an idea coming out of job sites ・・・

the theory of comparative advantage in architecture

Its premise・・・While capital moves, organizational capability doesn’t move easily and is unevenly distributed in countries.

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To Verify Globalization from this Standpoint Again▪▪


What moves around globally ・・・

capital, fund, goods, services getting on electronic media

Era when capital selects countries (Ryoji Musha, Theory of New Imperialism)Financial instruments made into digital information goods ・・・

flying around globe in a flash“Globalization” started from the U.S. = notable constriction to American standards

What hardly moves around globally ・・・

people, organizational capability ・・

staff unevenly distributed

America has collected immigrants for 200 years ・・

but limited countries with capabilityChina made “short-term domestic immigrants” out of its inland workers (not foreign

immigrants)

Organizational capability evolves in an emergent manner pursuant to a particular nation’s history.Organizational capability is fostered by capability-building environment and capability-building competition.An international transfer of organizational capability is possible with multinational corporations, but takes

time.

Accordingly, based upon unevenly distributed organizational capability, a nation’s industry builds comparative advantage, is specialized, and divides labor internationally.

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Strategic Theory Originated from Manufacturing Job Site ▪▪▪ for Which Advanced and Flexible Raising and Lowering are Needed

Altitude 30,000 m ▪▪▪

theory on Japanese economy,theory on the world economy

Altitude 1,000 m ▪▪▪

theory on an individual industry, theory on trade

Altitude 100 m ▪▪▪

theory on managerial strategy

Altitude 5 m ▪▪▪

theory on manufacturing workshop

Altitude 1.5 m ▪▪▪

individual’s view of life at job site


Free up and Downdepending on problem

Economy

Industry

Strategy

Manufacturing (job site)

Viewpoint of manufacturing workshop for an analysis of globalization

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Uneven Distribution of Organizational Capability and Compatibility of Architecture

What is “open manufacturing”？

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Perceptional Change to Design-Based “Open Manufacturing”

Production site of manufacturing

Servicing site of service industry

Production site of manufacturing

Development/purchase/sales sites of manufacturing

Development site of service industry

Former narrowly-definedview on manufacturing

Future broad view onmanufacturing ▪▪▪“open manufacturing”

Manufacturing

Nonmanufac-turing

Manufacturing

Nonmanufac-turing

Production job site Development/purchase/sales job sites

Development/purchase/sales job sites

Good story but ▪▪

no stretch

To originate an idea not from“thing” but from “architecture”

Production job site

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“Manufacturing” Is to Make “Good Current of Design Information”

Idea from job site/actual article ・・・

Focus on “design” rather than on thing

Actual article＝Design information＋Medium

Aristotle ・・・Article＝feature＋material (feature being essence）

Products (goods/services) are artifacts (that which are designed beforehand).

If medium is tangible, it’s manufacturing (goods) . If medium is intangible, it’s service industry.

Chief source of value added lies in design information. (Medium is a vehicle to convey it.)

Open (broad-sense) manufacturing ・・・is, relying on an artifact, to create, transcribe, and transmit design information, and to make a current for that information to reach customers, and to gain customer satisfaction and economic effectiveness.

Medium

Designinformation

Material

Feature

Tangible medium

Designinformation

Intangible medium

Designinformation

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“Intrinsic Technology” and “Manufacturing Technology”

①Intrinsic technology ・・ Causal knowledge in which specific structurebrings forth specific function; Important, but likely to turn into a “solitary island” if left alone.

②Manufacturing technology ・・Knowledge to make a “current of design information” bound for customers ・・possible to be owned jointly between different sectors (both manufacturing and service industries)

To industrial competitiveness, ①intrinsic technology and ②manufacturingtechnology are closely connected with each other.

“Manufacturing technology is general-purpose technology for knowledge transfer across industries. (from competition-fulfillment industry to competition-insufficient industry)

“Manufacturing instructor” engages in knowledge transfer across industries.

And yet formerly, the discussion focused on intrinsic technology (government, mass communications, industrial circles, the academic world).

Only in the 3rd-term Basic Program for Science and Technology did it come to be acknowledged▪▪▪

“Manufacturing technology” is one of the 8 pillars.

Industrial competitiveness

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Architectural

Conception that “Value Added Resides in Design Information”A product is a medium ( = material) upon which design information has been

transcribed.

製品設計情報

媒体（メディア）＝素材

製品＝設計情報＋媒体

製品＝情報＋媒体

A product is a material (medium) upon which design information has been transcribed.

Product’s design information

Medium = Material

Product = Information + Medium

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Manufacturing Job Site▪▪▪To Include Production, Development, Purchase, and Selling

開発＝設計情報の創造

現場

＝

顧客（市場）へ向かって設計情報が流れる場

購買＝媒体の調達

生産＝設計情報の転

写

販売＝設計情

の発信

Product development = Creation of product’s design information

Production process＝Stock of product’s design information

Materials= Media Goods in process = Media Product = Product’s design information+ Media


開発は設計情報の創造である；生産は設計情報の転写である

＝

Media＝

Information

Job site = A spot where design information flows toward customers (market)

Production = Transcription of design information

Purchase = Procurement of media

Selling = Transmission of design information

Development＝ Creation of architectural information

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Strategic theory/industrial theory: with special attention to “design information” that is unevenly distributed in manufacturing job sites, to start with an observation of the state of design in a product/process with an open mind, and to reconstruct it from thence.

Two pillars

① Organizational capability for manufacturing = talent for a “way to pass through design information” peculiar to a specific corporation

② Architecture (design concept) = a “way to link design information” for a specific product/process

“Strategic Theory/Industrial Theory Initiated at Manufacturing Sites”

Manufacturingjob site

Industry Corporation

Economy

Assembly of job sites under the control of a certain capital

Assembly of job sitesthat have accumulated

in a certain region

National economy incorporatedinto world economy

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Competitiveness and Organizational Capability: To be Grasped in Multilayered Manner

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environmental

Grasp Competitiveness in Multilayered Manner：“Job Site for Starter” or “Start from Profit Anyhow”

組織能力深層の

パフォーマンス

表層の


利益


その他の環境要因

能力構築競争の対象領域

生産性

生産リードタイム

適合品質

開発リードタイム

価格

納期

製品内容の訴求力

広告内容の訴求力

組織ルーチン

　もの造りの組織能力とパフォーマンス

Hidden competitiveness

Organizational capability of

manufacturing

Apparent competitiveness

Corporation’s earnings o

Stock price

Indicators to measure capability of products which customers evaluate

Price; performance; delivery;brand; ad effect; marketshare; degree of customer satisfaction

Indicators to measure job sites’ capability invisible to

customers

Productivity; cost; production lead time; development lead

time; development productivity

Stuff that can be done at job sites but cannot be easily imitated by other firms

Keeping things tidy, in order and clean; problem solving; improvement; just in time;flexible production

Capability building competition

①Capability building for start ・・

“Job site = train own body,” sports-oriented strategy of Toyota style

②Start from profit picture ・・

“Head office = use own head,” Western style (Chinese style) strategy

O

Earning power

Other Environmental Factors

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Framework for Multilayered Evaluation of Competitiveness Example of Japanese Auto Industry

もの造りの

組織能力裏の競争力表の競争力収益性

為替レート、景気変動、本社の戦略的能力、その他の要因

同等

高い

低い

Toyota in 2005

Nissan in 1998

Ｖ字回復

トヨタ１兆→２兆

Exchange rates, business fluctuations, strategic capability of head office, other factors


manufacturing

Hidden competitiveness

Apparent competitiveness Profitability

High

Even

Low

V-shaped recovery

Toyota: 1 trillion → 2 trillion

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Particularly when a competition-fulfillment corporation manufactures a product of lapping-type architecture, “organizational capability in manufacturing” at job sites did not seem to decline much.

Challenge 1: And yet it is likely that productivity in “the first line corporations” is several times as large as that in “general corporations,” which cannot be neglected.A challenge is to raise an overall manufacturing capability of Japan.

Challenge 2: Further, even with corporations having strength in job sites, “strategic planningcapability” is insufficient in general.

▪▪▪

“Twisted phenomena” between operation and strategySyndrome of “strong plants, weak head offices”

Goal of our nation’s manufacturing corporations in the 21st century ▪▪▪

coexistence of strong job sites and strong head offices

First step for this: to accurately measure own company’s organizational capability, competitiveness, earning power, and evaluate them calmly. No measurement, no improvement.

Imbalance Between Manufacturing Capability and Strategic Planning Capability

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Hiddencompetitiveness

Apparent competitiveness Earning power

Capability building competition

Integrated-type manufacturingOrganizational capability

Integrated-type human development (mainly

multiskilled workers)

Integrated-type IT building(collaborative environment

responsive)

Integrated-type constructionof facilities

(low-cost automation)

Lapping-typearchitectural

product

Competition and Compatibility Generate Competitiveness

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Manufacturing = Making Current of Design Information

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Architectural

Let’s Think of Manufacturing from Point of “Designing”A product is a medium ( = material) upon which design information has been

transcribed.

製品設計情報

媒体（メディア）＝素材

製品＝設計情報＋媒体

製品＝情報＋媒体

A product is a material (medium) upon which design information has been transcribed.


Medium = Material

Product = Information + Medium

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Manufacturing Job Site ▪▪▪To Include Production, Development, Purchase, and Selling

開発＝設計情報の創造

現場

＝

顧客（市場）へ向かって設計情報が流れる場

購買＝媒体の調達

生産＝設計情報の転

写

販売＝設計情

の発信

Product development = Creation of product’s design information

Production process＝Stock of product’s design information

Materials= Media Goods in process = Media Product = Product’s design information+ Media


開発は設計情報の創造である；生産は設計情報の転写である

＝

Media＝

Information

Job site = A spot where design information flows toward customers (market)

Production = Transcription of design information

Purchase = Procurement of media

Selling = Transmission of design information

Development＝ Creation of architectural information

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Body design customersthink cool

Iron sheet of 0.8 millimeters thick Material = Medium

Design information

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Iron sheet of 0.8 millimeters thick

Creation of this is development.

Procurement of this is purchase.

Combining these two is production.(To transcribe design information onto materials)

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What is Happening at Press Plant ▪▪▪Production = Transcription

• Metal mold ＝ Design information implanted in a lump of iron• At a speed of about 10 times a minute, this information gets “transcribed” on steel

plates consuming 1,000 tons of energy, just like a printing process.• I.e., press production is an activity to transcribe design information held in the metal

mold.• If failed, steel plates get torn, bent, creased; that is, transcription errors.• How fast, cheaply, and accurately the transcription gets done is up to

the job-site capability.

Design of

body

Lump of iron

Design of

body

Steel plate

Metal mold

PanelFigure: from TOYOTA Commemorative Museum of Industry and Technology

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‡

Iron Sheet Absorbs Design Information Held in Metal Mold and Turns into Automotive Side Body

That is, to transcribe the design information held by a metal mold onto a medium of an iron sheet.

Figure: from TOYOTA Commemorative Museum of Industry and Technology

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Material

Press

Cut out - bend

Crinkle- cut out - bend (1)

Crinkle- cut out - bend (2)

‡


Iron sheet of 0.8 millimeters thick

Manufacturing is ・・

To make a “current for design information” bound for customers, and to make this currentuninterrupted, efficient, and accurate.

To create design information is development.To procure media from outside the company is purchase.

To transcribe design information onto materials isproduction.

To transmit it to customers is selling.

Customer satisfaction

Product = Design information+ Material (medium)

Sale →

Use →

Interpretation

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Goods (Tangible Media) and Services (Intangible Media)▪Goods (intangible media) ▪▪▪indirect transcription in 2 steps：①transcription

to media (production) ②transcription to customers (consumption)

▪Services (intangible media) ▪▪▪direct transcription to customers

Designinformation

Media(tangible)

Media(tangible)

Designinformation

Media(tangible)

Designinformation

Designinformation

①Production

②

Designinformation

Media(intangible)

Media(intangible)

Designinformation

Design information

DistributionConsumption Satisfaction

SatisfactionProduction

Consumption

Development

DevelopmentDissatisfied consumer

Satisfied consumer

Dissatisfied consumer

Satisfied consumer

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Takahiro FujimotoProfessor of Faculty of Economics, The University of Tokyo

Executive Director, Manufacturing Management Research Center Senior Research Associate, Harvard Business School

Globalization and Industry: Evolution of Organizational Capability andComparative Advantage in Architecture (2)

The University of Tokyo(November 13, 2008)

Global Focus on Knowledge/Winter Semester 2008

Organizational Capability of Integrated-type Manufacturing

― It includes all of production, development, purchase, and selling.

Basis: Teamwork of Multiskilled Workers

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Hypothesis about Compatibility Between Organizational Capability and Architecture―Sketch of Whole Span


manufacturing(maldistributed inspecific regions)

Architecture forproduct/process

(selection by product)

Comparative advantage of specific nations and products

Compatible?

Capability- building

environment


competition

Capability- buildingcapacity

Demand for function/cost from market/customer

Restrictions/ regulations

society imposes

Technological/ structural condi-tions of product

Independent behavior/choice of persons in charge of corporation/business/job site

Other environmental conditions, accidental events, and such

Integrated-type Organizational Capability In Manufacturing Seen As “System For Creation/Transcription of Design Information” (E.g., Toyota)

①

Production：can be explained uniformly as “transcription of design

information of high density/accuracy from process to product”

②

Product development：can be explained uniformly as a “bundle of the

prompt and integrated problem-solving cycle”

③

Supplier sytem：can be explained with the three routine, mutual

complementarirty of “long-term stable dealing,” “capability-building competition among the few,” and “to entrust in a bundle.”

In short ▪▪▪

it’s an “organization that is quick on the uptake of intellect (design information).”

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Organizational Capability of Integrated-type Production: Concentration on Density and Accuracy of Information Transcription

Productivity of 2nd process(man-hour per unit)

Productivity of 1st process(man-hour per unit)

Cycle time

Workers

Raw materials Goods in process End product

1st process 2nd process

Inventoryhours

Inventory hours Inventory

hours

Transpor-taionhours

Cycle time Cycle time

Production lead time

Receiving side(lead time)

Transmitting side(productivity)

Cycle time

Workers

Net working hours (information transmission hours)

Net working hours (information reception hours)

Hours w/o information transmission/reception

(Stock, holdings, transport, etc.)

Productive resources

①

② ②

③

Inventoryhourshours

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Toyota System Observed from Current of Design Information (Productivity/Production Period)

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Takahiro Fujimoto 1997

Organizational Capability of Integrated-type Product Development (E.g., Motorcar) Basis: “Early and Conciliatory Problem Solving”

①

Joint development/linkage coordination with a parts maker▪▪▪

design- in/approved drawing method

②

Effective use of organizational capability of production job site for product development▪▪▪

trial manufacture, steel mold, mass-production startup

③

Overlap-type development▪▪▪

overlapping and linkage coordination in product development and process development

④

Project team by a select few ▪▪▪

teamwork by multiskilled-type engineers

⑤

Heavyweight product manager ▪▪▪

a strong development leader with concept responsibility (The above from research by Clark and Fujimoto)

⑥

Overlap and linkage coordination between projects (Research by Nobeoka)

⑦

Front loading ▪▪▪

moving up of problem solving by development support IT (Research by Thomke and Fujimoto)

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Fujimoto, Nobeoka, Thomke, Data for Global Motorcar Product Development Research Project (Chart drawn by Nobeoka）

Development Productivity of Motorcar: Japan’s Shifts Nearly Twice as Much as US/Europe’s

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

Period 11980-84

Period 21985-89

Period 31990-94

Period 41995-99

USA

Europe

Japan

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Organizational Capability in Integrated-type Purchase:Long-term Merit System

Three basic patterns (Supplier system’s “three sacred emblems of sovereign rule”)

• 1 Long-term stable dealing• 2 Harsh capability-building competition among a few suppliers

(development competition and such)• 3 Structure of division of work by “entrusting in a bundle”

There is reciprocal complementarity among them. → contributing to competitiveness

A basic premise is “capability of multimodal assessment” on the part of an orderer: for that purpose are in-house production, a group for improvement.

“Long-term merit system” that evaluates without haste the work behavior of suppliers over a long period of time

⇔ Long-term relation system (an overly relaxed situation where relation is the key to order placement)

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Three Levels of Organizational Capability Building(1) Manufacturing capability ▪▪▪

capability to make better currents for a few million times a year To be always conscious of hours (net working hours) that produce value to customers To make a current of process by going upstream starting from customersTo spread out maximization of net working hours (minimization of futility) throughout the

whole company That is, simultaneous improvement of transcription density/accuracy of design information.

(2) Improvement capability ▪▪▪

capability to make better currents for a several hundred thousandtimes a year

Problem finding：mechanism (bringing into sight) that cannot help revealing problems (futility, mistakes)

Problem solving：to make tools routine (standardization) ; to be thorough abouteducation on tools

Everybody circulates standardized problem-solving cycle (PDCA cycle) .

(3) Evolution capability ▪▪▪

capability to evolve the above mechanism (routine) for several decades

The whole organization’s “mental preparedness” to be always conscious of “customer satisfaction” and “competitiveness”

For everyone to carry out a matter of course continuously▪▪▪

“follow up,” “lateral unfolding,” “brake,” standard”At any cost (even with a lucky mistake), to finish with “capability building” at the encd

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Logic to Explain Maldistribution of Organizational Capability ▪▪▪

Evolutionary Process

Structure, function and development of integrated-type manufacturing capability

Organizational capability of manufacturing(maldistributed in specific regions)


environment


competition

Capability- buildingcapacity

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Framework of Evolutionism in Positive Social Science

Positive framework that explains justification for existence of a social system or an artifact for which rationality after the fact is recognized without relying upon rationality before the fact

How to explain existence of a certain social system?

① Structural theory ▪▪▪

what it is② Functional theory ▪▪▪

for what purpose it has been made

③ Developmental theory ▪▪▪

from where it has come

Situation in which, in order to explain a certain structure, functional logic (existential logic) and developmental logic (becoming logic) have to be prepared as being different ▪▪▪

evolutionism’s role

Specifically ▪▪▪

to explain existing a social system or an artifact as the result of variation, selection, and retention.

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Maldistribution of Organizational Capability in Industrial Level

Common experience during the rapid growth period brings forth an uneven distribution of organizational capability in a flock of job sites (industry).

“Economy of scarcity” ・・

needy circumstances in youth

→

By holding back intracompany specialization (toward multiskilled workers), and By promoting intercompany specialization,To expedite intracompany and intercompany cooperative works (teamwork)

Lack of productive resource, under a certain condition (existence of capability- building capacity), nearly compels productivity enhancement (high-altitude training effect).

Subsequently, if productive resource becomes sufficient, sn output grows explosively. Subsequently, if an output becomes excessive, competition becomes accelerated.

The above is most likely to be an unintended result (a lucky break, a thing done in jest coming true).

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